Houzz versus Houzify- A Case of Execution Without Trial?

In this post Rahul Bajaj, our first SpicyIP Fellow for this year analyses the recent tussle between Houzz and Houzify over use of their trademarks.

Barely a month after Facebook decided to pull the plug on its Free Basics initiative, a recent case of the social media giant acting as a trademark cop has reinforced the need for internet gatekeepers to act in a transparent and non discriminatory manner. Facebook recently deactivated the social media page of a Bangalore-based home interiors startup on allegations of deceptive similarity.

The case poses profound and complex questions about the manner in which internet intermediaries ought to act when faced with takedown requests of allegedly infringing material. It would be instructive to briefly set out the factual matrix of the case before delving into its wider ramifications.

Facts

Houzz, the company that sent the deactivation request to Facebook, is a Palo Alto-based undertaking. It runs an online platform that acts as a connecting link between home owners and decoration professionals. It specialises in providing owners ideas for remodeling and designing their homes.

Houzify, is a start-up based out of Bangalore that also specialises in home design and interior decoration. As this terrific piece on the case notes, Houzz sent a legal notice to Houzify on the December 16, 2015, contending that the marks Houzify/Housify were deceptively similar to Houzz. This argument was further fortified because the services provided by Houzify were in direct competition with those provided by Houzz.

The notice demanded that, inter alia, Houzify withdraw its trademark registration application and change its domain name so as to prevent any likelihood of confusion between the two marks.
In its reply dated Houzify made three central arguments:

First, the two marks were structurally, visually and phonetically dissimilar; therefore Houzz’s argument was completely baseless.

Second, the word Houzz was the equivalent of the base word house and lacked any sui generis features on account of its generic nature. Houzify substantiated this argument by citing various examples of companies that were using brand names derived from the word ‘house’ such as Houzee, Houz of Bundles, In Houz, etc.

Third, it was contended that Houzz does not have any reputation and goodwill in India whereas Houzify exclusively focuses on the Indian market. Further, Houzz’s registration application designating India for the registration of its mark under the Madrid Protocol, was dated Oct13, 2014 – four months after Houzify had registered its domain name.

In its rejoinder, Houzz reiterated its argument that the marks were deceptively similar that any reasonable person was likely to be deceived by Houzify’s mark. It also stated that it had already initiated legal action against third parties that Houzify claimed were using similar marks.

Houzify’s bona fides are best evidenced by the fact that in its final reply dated February 11, 2016, it expressed its willingness to change the font of its mark in order to allay Houzz’s fears. It also agreed to place a disclaimer at prominent places for a period of three months stating that it had no relationship with Houzz. In the midst of this legal battle, however,Houzify learned that Facebook had deactivated its page at Houzz’s request.

Two inexorable conclusions directly flow from above:

First, both parties have fair and legitimate legal arguments and,

Second, by no means is this case as open-and-shut as Facebook’s hasty action would have us believe.

Indeed, in light of the fact that Houzz’s application for trademark registration in India is still pending, coupled with the fact that Houzz does not cater to the Indian market, it would not be unfair to state that Houzz’s case rests on tenuous legal footing.

Wider Ramifications of Facebook’s Actions

Facebook’s hasty decision to arrogate to itself the power to determine Houzify’s guilt even before the legal battle has formally begun is a huge cause of concern for net neutrality and Internet freedom.

Specifically, Facebook’s action is troubling for at least four important reasons.

First, Facebook seems to have arrived at the decision to takedown Houzify’s page without giving the latter any opportunity to show cause why its page should not be taken down. This violates the basic principles of procedural fairness.

Second, Facebook’s action would not be so worrying if this case were an aberration. As this article rightly notes, Facebook has consistently failed to articulate a set of coherent and legally defensible principles in grappling with takedown requests.

Facebook’s policy for dealing with claims of trademark infringement states that allegedly infringing material may have to be immediately removed in certain circumstances without giving the other party an opportunity to be heard. It makes no mention of what forms of infringement would trigger the exercise of such a hasty measure. Further, the policy states that Facebook has to ‘process’ the take down request without stating what such processing would encompass.

There is no mention of which stakeholders would be consulted or what balancing tests would apply to ensure that it does not end up inadvertently tilting the balance of a lawsuit in favour of one party.

In Shreya Singhal, the court read down Section 79(3)(b) of the Information Technology Act, 2000 and Rule 3(4) of the Information Technology (Intermediary Guidelines) Rules, 2011 which cast a duty on intermediaries to expeditiously remove any third party information/unlawful material on their platform, to mean that such removal would only be necessitated by a government or court order.

Rule 3(2) of sets out the type of material that would be considered unlawful. This includes inter alia, material that ‘infringes any patent, trademark, copyright or other proprietary rights’. The court held that these two provisions had to be interpreted in this manner because “Otherwise it would be very difficult for intermediaries like Google, Facebook etc. to act when millions of requests are made and the intermediary is then to judge as to which of such requests are legitimate and which are not.”

By arrogating to itself the power to make precisely the kind of determination that the court cautioned it against, Facebook has found itself in the unenviable position of having to defend a decision which it clearly lacks the technical or legal expertise to make.

Finally, this case is the best example of how the existing ecosystem is so heavily stacked against small start-ups that they continue to die by a thousand tiny cuts. Facebook may very well finally decide to restore the content that it hastily removed, but on account of the ordeal that Houzify has been put through thus far, it would be fair to state that internet freedom will lose even as it wins in case that eventuality comes to pass.

One comment.

The idea of takedown notices, and the lack of a proper system to regulate them, is in part due to the fact that India, unlike the DMCA under America Copyright Law, has not established a firm procedure for intermediaries to process and respond to Takedown notices. YouTube for example, has a system under the DMCA for notices, counter-notices etc. The lack of such a system, also affects Indian start ups, because it is no surprise that the biggest Start-ups have been of American origin. This is in large part due to the fact, that intermediaries are not held liable, as long as they follow the DMCA. If India had a similar ( s. 79(3)(b)) aside, and more robust mechanism, procedural fairness by companies like Facebook would be ensured and the little guys ( Houzzify in this case) would definitely have the chance to make their voices heard.

Polls

Sign the Petition

Leading IP Academics Fired

This protest petition against unfair dismissals of Prof. N. S. Gopalakrishnan, Ministry of Human Resource Development (MHRD) Chair Professor at Cochin University of Science and Technology (CUSAT) and Prof. Yogesh Pai, MHRD Chair Professor at National Law University at Jodhpur, is now closed.

It was posted on SpicyIP blog on August 28, 2013 by Prof. Shamnad Basheer. Link to petition here: http://spicyipindia.blogspot.in/2013/08/leading-ip-academics-fired-protest.html